Trends in the Development of Ambulatory Care Centers
By Robert J. Zasa, MSHHA, FACMPE
During the last 20 years, there has been significant change in the delivery of ambulatory surgery. Many of the initial surgery centers struggled between 1972 and 1982 with challenges such as reimbursement, establishing themselves as high-quality facilities, and establishing the trend that a facility could be run on a profitable basis and still provide good quality of care. These early pioneers laid a solid foundation for many of us who have been involved in the surgery center movement for the last 25 years.
After 1982 and the approval of Medicare reimbursement for surgery centers, there has been a significant growth in the number of centers. This growth has occurred both in single specialty centers such as ophthalmology, plastic surgery and gastroenterology centers as well as multi-specialty centers. Today there are more than 2,600 ambulatory surgery centers (ASCs) throughout the United States. However, in recent years there has been significant change in reimbursement, competition and in the delivery of ambulatory surgery services. These changes have had a profound effect on the way that the facilities will be developed, built, and operated in the future.
Fewer Freestanding Facilities
The first trend is that there are fewer freestanding surgery centers being built and more centers built within a larger facility that offers a wider array of ambulatory care services. Many health organizations such as large group practices, healthcare systems, and some HMOs are developing multiple facilities within a 30- to 40-mile radius of their primary facility. The trend of garnering market share continues to be a strong one in the U.S. Having a strong market share converts to a stronger position when negotiating with managed-care payers. It certainly allows a facility to grow at a faster pace and secure its future in the increasingly competitive health-care market. Those who do not gain a strong market share are experiencing either merger or acquisition and will certainly be faced with dwindling revenues in the near future. To avoid that trend, many health organizations have purchased individual physician practices.
In a zealous effort to gain market share, many healthcare organizations have too many locations and are looking for economies of scale. There are several reasons for this. The first is to develop more of a regional center that is still convenient to patients but at the same time allows providers to gain economies of scale in staffing, supply costs and group purchasing. Secondly, regionalized facilities provide one attractive location that can serve as a gathering place for all of the professionals. This results in more referrals between the professionals as well as use of ancillary services that are now available due to the fact that there is critical mass within the facility to support them. There tends to be a more sophisticated group of ancillary services available in the regional facilities than can typically be economically supported in the individual physician's office. Thirdly, consolidation of real estate for healthcare providers becomes a great incentive to sell off small individual offices and consolidate the providers into a smaller number of larger regional facilities. What we are seeing in healthcare is basically a regional mall concept being implemented with smaller individual physician office practices being closed. This consolidation is being done while keeping in mind the convenience factor for patients. This trend is certainly mitigated by specific market conditions whereas in some areas this single office will remain due to its critical importance to servicing a particular community. However, this will be more an exception in the future than the norm.
These regional centers create more visual presence and have a tendency to be more attractive to patients. They typically have an "architectural signature" that reminds the patient that the facility is affiliated with a particular healthcare organization. Many healthcare organizations try to develop four to five major sites within a community depending upon the size of the market and the number of counties serviced. Our firm calls these facilities Big MACCs (Multiple-service Ambulatory Care Centers). Big MACCs typically have the critical mass to support multiple services such as ambulatory surgery centers.
Most Big MACCs are located in secondary markets and are at least 20 to 30 minutes away from the host facility. They typically include a number of rotating offices for specialists as well as permanent offices for primary care physicians including family practice, internal medicine or pediatrics.
Due to the fact that many healthcare organizations are developing or purchasing multiple sites and an ambulatory care is reimbursed less than hospital outpatient services, the sites need to be developed very efficiently, not oversized and planned to be expanded in phases. It is very critical to not overbuild, or over-spec these facilities from an architectural standpoint. If the facility is over equipped, built too large or built at standards way above the norm and need for ambulatory care services, the fixed costs to be covered by the lesser amounts of ambulatory care reimbursement become prohibitive. These are very specialized buildings that need to be developed in a very cost effective way and equipped similarly.
These Big MACCs require excellent traffic flow because of their ambulatory nature and they require a significant amount of parking due to the large volume of in-and-out traffic. The facilities should be functional, efficient, with good design and nicely finished. There is nothing inconsistent with having a high-quality, cost- effective facility and delivering good ambulatory care.
Specialties are Developing
The second trend is that of building smaller, single-specialty ASCs. There has been an explosion in the number of plastic surgery, GI, eye and urology centers built during the last several years. Physician practice management companies are also driving this. They want an ASC in their multi-specialty clinic. Many companies are building surgery centers within their medical clinics for the aforementioned specialties, or are consolidating these surgeries with others to form larger multi-specialty surgery centers. This trend is being fueled by the growth needed by the physician management companies that is mostly coming out of ancillary service growth. In addition, as these companies develop more capitated rates for a variety of services, capturing the profits and controlling the costs from outpatient surgery will be more important to them in the future. Other areas they are looking at are birthing centers, diagnostic centers and other types of services that can be legally owned by the group under the group practice exemption of the Stark I and II regulations.
Leaner and Meaner Facilities
The third trend is that ASCs are being built "leaner and meaner." Reimbursement for outpatient surgery has dropped 25 percent. This is due to the HMOs, PPOs and other managed-care players gaining larger discounts from ASCs. Medicare has had a freeze on rate increases in surgery centers. Lower reimbursement means ASCs have to lower costs and one means of doing so is to reduce initial capital costs such as building smaller, more efficient spaces.
Redefining Space Needs
Another trend is helping ASCs refine space. "Just in time" inventory reduces the bulk storage requirements of surgery centers. The amount of storage space is simply not needed as it was years before this cost-effective management tool was implemented. Operating room (OR) size is now being revisited. Many architects are downsizing ORs or building one very large room for orthopedics or other specialties that need a lot of equipment. Another trend is to put the table on an angle, using the deep corners of the room for additional storage space rather than having the table parallel to the back wall. This is an innovative technique and allows equipment to be stored in the room safely, but clearly out of the way of OR personnel, the anesthesiologist and the surgeon. Additionally, there are better anesthesia drugs available that now allow for patients to be semi-awake while they are being wheeled out of the OR. Since this increases OR output, ASCs require more recovery room spaces per facility. We now encourage our clients to develop four recovery spaces per OR. The mix of services also has a great deal to do with the number of recovery room spaces necessary. If a lot of children are having ear tubes or tonsillectomies done, theses cases are done in a relatively short time within the OR and have the tendency to easily impact a recovery room in a short period of time. If a facility is planning to have heavy caseloads in specialty areas, they need more recovery space than a normal surgery center.
Birthing Centers Are All the Rage
The fourth trend is that birthing centers are becoming more and more popular in a freestanding setting. There is an increasing trend of developing labor/delivery rooms with postpartum rooms physically next to surgery centers, particularly in Big MACCs. There is an accreditation association for birthing centers with formal criteria for such facilities. They have done a great deal to help standardize and raise the level of service and design. Typically such facilities are developed with three or four 72-hour beds. These beds allow the patient to stay if it is necessary and/or appropriate for the mother's physical wellbeing. The operating rooms of the surgery center can be used in case of severe emergency. The ASC can serve as a backup for this particular service when they are both found in a MACC.
The fifth trend is the trend of developing Big MACCs as replacement hospitals. There are a large number of small facilities in rural areas that have been built in the past that currently cannot be converted to meet fire safety code requirements. There is a trend to use these older facilities and convert them to nursing homes or assisted living facilities. In addition, there is a trend to build a new facility that has primarily an ambulatory care focus but has have some 72-hour observation and recovery beds available. Typical services in such facilities would include urgent care and extended hours or a full-blown emergency department, CT and other diagnostic X-ray services, mammography, ultrasound, a phase I laboratory, a surgery center, four to six medical observation 72-hour beds, and a birthing center with postpartum backup (using the 72-hour beds). These facilities typically also have permanent offices for primary care physicians, timeshare space for specialists, EKG stress testing and cardiac diagnostic areas, a small pharmacy, optical area for refractions and glasses, dental space, and typically some type of physical therapy, wellness or cardiac rehab area in the building. The services are very market specific. They depend upon the distance between the main provider's facility and the location, the population and physician demographics of the area, as well as competition in the area.
A greater number of healthcare organizations are refining their market assessment to understand which ambulatory services are feasible and necessary. Population demographics, physician demographics, utilization for outpatient services are typically being analyzed by healthcare organizations to develop specific plans for servicing the medical needs of these secondary markets. Location is very critical for these facilities. The traffic count must be in the 80,000 range per day and the location must be easily accessible to interstates and other major thoroughfares within the area. The new ambulatory care facilities basically house "retail" healthcare services. They have many of the attributes of a mall. In fact, many of them are located next to a mall or other food or retail outlets that have significant traffic. Such market assessment and good financial projects are critical before developing Big MACCs on campus or in secondary markets. It is imperative to know which services in a given market have the best chance of succeeding, and what is the expected economic return for the services if established.
Once the market assessment is completed, a business plan should be developed which includes financial projections for both the development and operations of the facility and all services to be located within it. The projections should include profit/loss projections, cash flows, total source and use of proceeds, projections of equipment and all construction costs, land costs and soft costs for developing the project.
Good experience in development, joint venturing and managing facilities is required by the individual performing such projections. Surgery centers and many other ambulatory care services are volume-sensitive businesses. It is imperative that projections are done accurately and are operationally sound. For that reason, it is essential to have someone who is experienced in operating these facilities to review or prepare the projections to assure that the cases are not either overstated nor the expenses understated. Planning such ambulatory care facilities also requires those who have had extensive experience in the development of the newer model, cost effective facilities. Significant cost savings in land, construction, design, and equipment costs can be gained by using such a firm for planning and design/build functions. Use of specialized design-build firms or architects that specialize in ambulatory care facilities is a growing response to the trends in specialized surgery/ambulatory care services. Many of these firms are spending significant internal time and resources to further refine their ambulatory care facility space programs, patient flow pattern, clinical spaces, building specifications and building costs.
Healthcare organizations are moving quickly to capture the ambulatory care market share within secondary markets surrounding their facilities. It is imperative that they do so in order to sustain strong future growth, and continue to obtain key managed care contracts. However as they do so, they must implement their plans, keeping in mind the new trends with the ambulatory care field in order to successfully implement such strategies.
Robert J. Zasa, MSHHA, FACMPE, is a principal of Woodrum/Ambulatory Systems Development, Inc.